Keeping accurate, up-to-date records is essential for the financial health of your Hillsborough small business. A balance sheet is one of the most widely used financial statements by both accountants and business owners to get a clear look at the business’s finances during a period of time. It’s also called a statement of financial position.
Every balance sheet consists of three main components: liabilities, equity, and assets.
Assets are what a company owns, including resources that have been purchased, inventory, and resources that have been paid in advance and have not run out, such as rent that’s paid in advance or a pre-paid insurance plan. Assets are often divided up into liquid, including cash or items that can easily be sold for cash, and non-liquid assets that can’t be converted into cash like property or pre-paid insurance.
Every business comes with operating costs and financial obligations. Most liabilities are categorized as current, meaning they have to be paid within one year, and long term, meaning they can be paid off outside of one year.
Equity is your end result after subtracting your liabilities from your assets. Your equity shows you a clear picture of your business’s value. A higher equity generally means a healthier business.
Not only is it important for you to have a clear, up-to-date look at the value of your company so you can make smart decisions related to inventory, paying off debt, growth, and hiring, but other people may need to see your balance sheet, too.
If you want to expand your business and require a loan, banks or creditors will require a look at your balance sheet to ensure you are a good investment. Additionally, banks, investors, government agencies, and financial officers in your business may want to review your balance sheet if they have a stake in your business.
At C.E. Thorn, CPA, PLLC, we work with small businesses around Hillsborough, providing a variety of accounting services for small businesses. Let us help you create an accurate, up-to-date balance sheet so you have a clear picture of the health of your business. Learn more about our services and how we can help you when you call us at 919-420-0092 or complete our online contact form to schedule a consultation.